There are 3 bona fide scenarios in which a homeowner should consider an ARM over a 30-year fixed.
The first scenario is one in which the homeowner intends to move or sell within the next 5-7 years.
For homeowners not in need of a “long-term” loan, an adjustable-rate mortgage can be an excellent way forward. There’s no need to pay more for the fixed-rate nature of a 30-year fixed rate loan when a 5-year ARM can suffice.
A second scenario for which to consider an ARM is when you know with certainty that you will refinance your home within the next five years.
This scenario can be tricky, however, because there’s no guarantee of what mortgage rates will be in the future when you decide to refinance; or whether you’ll qualify for a loan when the time comes to refinance.
Lastly, consider a adjustable-rate mortgage if you’re comfortable with the notion that your mortgage rate may change, and you’re budgeted to make larger payments. Payments for an ARM won’t leap uncontrollably, but any increase to your payment can be an uncomfortable one.